Econ. Devel.
India Project
C/55-1Oa
W. Malenbaum
May 19, 1955
Economic Growth in India-195/56
1960/61
The attached paper started out as a comparison of the various
unofficial drafts now available on the Indian Second Five-Tear Plan.
I am afraid it turned out to be more nearly the broad lines of an
alternative formulation (even more unoficiall).
The comparative
material on the Federation of Indian Chambers of Commerce, Indian
Institute of Public
pinion, Mahalanobis and "official" programs
has been relegated to a brief appendix, which will be duplicated
and circulated shortly.
Comments- are welcomed.
This paper (in a later draft) is meant to be a final section
of an analysis of current developments in India.
ERRATA SHEET
Economic Growth in India-1955/56 - 1960/61
W. Malenbaum
1.
Page 15, Table IV:
a) Under "Second Plan" 2.8%(as given in First
Plan) becomes 2.3%,
b) 6.2% (FICC) becomes 7.6%,
c) 9.1% (IIPo) becomes 7.3%;
d) delete asterisk two and note.
2.
Page 39: line 4: 0.84 becomes 1.03,
line 5: 1.95 becomes 2.24,
line 14: Rs. 950 crores becomes Rs.
.150 crores,
line 15: .9:1 becomes 1.08:1.
3.
Page 39, footnote 2: change "reversed their to "used a lower".
C
3
Section
Q The Economy in 1960/61
A, Employment Goals for the Second Five Year Plan
Basic data on "means of livelihood", as of March, 1951, were publhed
in the Census of India
1951.
Najor groupings are shown in Table 1.
To
make these comparable to estimates of income, the figures need to be adjusted
Table I - Population and Working Groups, 1951
(millions)
Total
Population
Urban
619
M.
f2.1
Rural
294.7
m.
f.
Total
~
356,6
Total
21.5
Workers
Ielf-supporting
Earning depend.
Non.earning
dependents
12.8
1,5
1646
15,2
1.3
85.7
120.8
35.1
70,.6
25.1
3142.3
104.4
~
25.2
173.9
674
11.9
23.2
37o9
106a5
2143
upward by a small amount, from a total population basis of 356.6 millon to
361,2 million persons.
Corresponding working force figures are given by
the National Income Committee.
From these statistics rough projections
were made to approximate the working force in later years.
1. The Census tabulations exclude 4.41 million persons in Jammu and
Kashmir. .Omitted too were 229,000 persons in the Punjab, where records
were lost in a fire at the Census Tabulation offices in Jullunder. The
final total (361,239,000) still excludes the Part B tribal areas of Assam,
for which information was not obtained. (These areas contained approximately
600,000 people in 1951).
0
2
Table II.
Working Force (millions, as of March)
Total
Population
A: 1951
B: 1955
c: 1961
Narking
Force
Non-earning
.Dependeits
Urban
62.5
21.7
40.8
Rural
298.7
121.5
177.2
Total
3 61 .2 (a)
143*2
2180
46.5
Urban
71.3
Rural
309.9
126.1
183a5
Total
3 8 1 92 (b)
151.2
23Oo0
24.8
Urban
86.3
29.9
56.4
Rural
324.9
133.3
191.6
Total
4n
363o2
2480
2
(b)
(a) Totals are given by the National Income Committee.
breakdowns are based on pertinent ratios of Table I.
Rural-urban
(b) Population assumed to increase by 5 million persons annually, the
absolute increase shown in official estimates for the years through 1954,
and suggested by the Indian Census Cormissioner for the years through
1961, Working force has been expanded by 2 million annually, the figure
estimated for the years 1948/49-1950/51. Urbanization has been assumed to
increase from 17.3 per cent in 1951 to 18.7 per cent in 1955 and 21 per cent
in 1961. Finally, the ratio of urban working force to urban population
in 1951 was maintained for later years.
3
The assumptions of Table II yield a working force of 163.2 million
in 1961, 12 milion more than at present, i.e. there will be 10 million
more people in the working categories over the Second Five Year Plan
period.
It may also be assumed that urban populations will continue to
have a higher ratio of non-earners, and that urban workers will continue
to include a smaller percentage of earning dependents (persons only
partially self-supporting) than do rural people.
The current unemployment situation, on uhich there are admittedly few
firm estimates, was summarized by the Finance Minister in December, 1954,
as involving "some 15 million people out of the total working force of
about 15 crores (vide Table IIB) who may be regarded as available for
absorption in new lines."
The bases for this estimate are preliminary
indications from surveys in process that "in some of our urban areas 8 to
10 per cent of the employable population needs to be drawn into productive
employment."
Using the estimates of Table IIB, this would suggest some
2.5 million urban unemployed.
There would thus be 12.5 million more in
the rural areas, about 10 per cent of the rural labor force.
If an
unemployed person is taken to mean one who actually is aware of his lack
of work, or of his small contribution to output on his job, and who is
prepared to accept alternative employment, this would appear to be a high
1. "Official" estimates for the Second Plan occasionally assume an
increase of 9 million workers through natural growth over this period.
(See, for example, hr. Deshmukh's statement in the Lok Sabha on Dec. 20, 1954,
and Mr. Nehru's to the National Development Council on May 5, 1955). These
projections seem conservative, given recent experience, the growing absolute
size of the total population, and the possibility that population may increase
more rapidly as a result of declining death rates (with birth rates lagging
behind).
estimate of actual unemployment in rural India.
(However,
it is important
to remember that 18 per cent of ru.ral workers are non-agricultural; here
the unerployment ratio may be well above 10 per ceit.)
On the other hand,
the 10 per cent figure is probably a low estimate of underemployment,
defincd as the number of persons that could be withdrawn from the rural
labor force without reducing current levels of rural output, production
techniques remaining unchanged.
Since it
is important to reduce under-
employment in India, it may be appropriate to use the 10 per cent figure
(15 million persons) as the number of people in the present working force
for whom new job opportunities must be considered.
The Finance Minister has approached the problem in terms of absorbing
these 15 million over a ten year period, beginning with the Second Five
Year Plan.
Over the f1 years, beginning with 1955/56 (the last year of the
present Plan) and extending through harch 1966, this means the creation of
employment opportunities for some 22 million persons who
ill
be added to
the labor force by natural growth, plus the 15 million wno are currently
unemployed.
An average of about 3.5 million new jobs is required each
year, beginning now.
Vhile some allowance might be made for a gradual
expansion in the capacity of the economy to absorb the unemployed, it would
appear realistic to plan now for such a rate of providing new employment
opportunities.
1. This figure differs markedly from Mr. Deshmukh's target of 2.4 million
new -obs each year. Partly this is due to his lower estimate of natural
increase in the labor force. Primarily, however, it is due to the fact
that he provides fixr the absorption of only 3 million og the presently
unemployed t.eing the Second Plan. (Urban unemployed essentially?) This
leaves 12 million of the present unemployed for the Third Plan period
(1961-66)9 an average absorption of almost 5 million persons annually in
those years.
Over the 6 year period from now until the end of the Second Plan,
therefore, what are the alternative possibilities for employing 21 million
additional persons?
At the most general level, it might be observed that
there are now some 25 million workers in urban areas (of whom about 2.5
million are unemployed).
If essentially urban employment were being
considered, this would mean increasing the employment opportunities there
by more then 90 per cent.
It would also mean the addition of almost 19
million more workers to urban areas, as against the 5 million assumed in
Table IIC, and which already reflected a continuation in the acceleration
currently discernible in the rate of rural-urban migration.
However,
instead of the urban areas attaining 21 per cent of total population in
1961, they would need to increase to 31 per cent (assuming families moved
with workers).
This might of course occur through a more concentrated
growth in towns and smaller cities, although the present trend is for the
larger cities to grow more rapidly.
In any case, the assumption of providing
urban employment would mean almost a doubling of the urban-concentration
ratio in India over the decade 1951 to 1961.
There would undoubtedly be
tremendous employment opportunities in housing and in such social overhead
fields as the supply of transportation, water, sanitation facilities, etc.
In 1951, for example, there were 10.31 million houses in urban India,
On
the average, these accomodsted 6 persons, i.e. more than an average family
unit.
(A governmental committee had estimated an urban shortage of 1.84
million houses in the pre-Plan period--a figure which corresponds reasonably
with the doubling-up ratio.)
Programs for slum clearance were given considerable
attmntion in the First Five-Year Plan.
With at least a doubling of urban
6
population, therefore, it is reasonable to assume that there would be
need for at least 10 million more urban housing units in 1961, as
compared with 1951.
On the basis of the information available here, it
seems unlikely that as many as I milli6n of these had been constructed,
both by private groups as well as public authorities, by April 1, 1955.
Conservative cost estimates for the housing which the Central Government
believed would meet minimum standards were Rs. 2200 per tenement in
smaller towns, and Rs. 4500 in the multi-storied buildings of larger
cities.
It has been noted that population growth has been most marked in
the latter group.
Rs. 3500,
Even if the average cost were taken at the figure of
new investment for urban housing alone, i.e. apart from invest-
ment directly in productive facilities, would aggregate Ra. 3150 crores for
the 6 years from now until the end of the Second Five-Year Plan.
Employment might be sought more generally in the non-agricultural
field.
There are currently some 45-50 million persons whose means of
livelihood fall in this sector, and 20-25 million of these are now in
rural areas.
Twenty-one million new non-agricultural jobs mean an expansion
in employment opportunities over the six-year period by about 50 per cent
(since' this takes into account the
are now unemployed).
5
million non-agricultural workers who
If it is assumed that 6 or 7 of the 21 million new
jobs are provided in the urban areas (thus approximating the urban
concentratiot* postulated in Table IIC), rural non-agricultural employment
1. Some figures by private industrial concerns on the average cost of
housing for their workers show a range of Re. 2700 to Re. 5200 for the
minimum-cost units. These expenditures are frequently exceeded. (See, for
example, figures for the paper industry cited by Eddison, The Indian Paper
Industry Center for International Studies, 1955).
7
would have to increase by more than 70 per cent.
It might be observed
that a large part (perhaps 35 per cent) of the present non-agricultural
employment in rural areas is in cottage and handicraft enterprise.
These
enterprises, as the Pinance Minister points out, are currently "fighting
a somewhat uncertain battle for existence."
preventing more unemployment.
The immediate problem is
On the housing front again, even if urban
population expanded more moderately, as shown in Table IIC, housing investment in the urban areas would need to aggregate about Re. 1000 crores
(3 million houses at Re. 3500).
In addition, of course, rural housing
for the expanded population would be needed.
In 1951, rural housing was
on the whole already overcrowded, although not to the extent of the urban
position.
On the other hand, rural housing of minimum but adequate
standards can be built at a cost of about Re. 300 per unit, provided no
account is taken of direct labor inputs.
Given the present estimate of unemployment in agriculture, and
perhaps even larger figures, if account is taken of underemployment, it
is generally considered that the new employment opportunities ought to be
found outside of agriculture, as in the assumptions above,
However, the
Government of India thinks in terms of producing its food requirements,
rather than depending upon imports.
Growth of population (by 30 million
people in the next six years) will therefore require expanded output-at
least by 1 1/2 per cent per year.
While such an expansion need not require
a corresponding increase in the number of persons effectively employed in
agriculture, it seems reasonable to expect at least partial absorption
of the currently unemployed in agriculture over the period.
The number of
8
new non-agricultural job opportunities needed over the six years might thus
be reduced to closer to 3 million per year.
This is perhaps the most
conservative of the three alternative--and general-enployment possibilities
in a program to eliminate unemployment by 1966.
A rough calculation can
be readily made of the (minimum) expansion needed in Indian output.
Assuming
that productivity per worker in non-agricultural fields remains unchanged,
non-agricultural output must be increased by 42.5 per cent over the next six
years.
Agricultural output would need to increase by about 10 per cent.
Such increases, in 1948/49 prices, imply 445 crores of income per year,
on the averageover the next six years.
In these prices, this would mean
for 1960/61 a domestic product of Rs. 12,665 crores, of which Rse 5360
crores (42.5 per cent) would arise from agriculture, and Re. 7305 crores
from the rest of the economy.
Comparative figures are shown in the following
table.
TABIE III
Domestic Product, 1948/149 prices, Rs., crores
1953/54b)
19514/55*)
3.960/61.d
Agriculture
95/1)
4340 (49%)
4730 (48.7%)
4870 (48.7%)
5360 (42.5%)
Othezx
4530 (51%)
4970 (51.3%)
5130 (51.3%)
7305 (57.5%)
Total
8870 (100%) 9700 (100.0%) 10000 (100.0%) 12665 (100.0%)
a) Final Report of the National Income Committee, New Delhi, p. 143
b) CEIS estimates. See Malenbaumi, "India's Domestic Product," Indian
Economic Journal, Jan., 1955, p. 248. (Figures have been converted to a
factor cost basis, to make them comparable). In the text above, calculations are based on 1953/54 relationships, althoqgh the argument applies
to 1954/55, for which estimates have not yet been made. Official estima-es
for 1953/5. have recently become available. The new total is Rs. 9950
crores, Sectoral components are not available for this total. They would
undoubtedly raise the present estimates for 1960/61.
c) Assumed, but probably low, given the. official figure for 1953/54.
d) As per text.
1. If, as seenis desirable, output per man in these sectors is to increase,
total product vould of course need to be expanded even more.
9
In per capita terms, allowing for population as in Table IIC, the fuller.
employment objective would show a product of Ra. 308, as against Rs. 246
in 1950/51, a minimum increase of 25 per cent per capita over the decade. 1
In the above, particular attention has been focussed on the employment
objective, and along the lines suggested by the government.
Growing
unemployment (and indeed maintenance of the status quo) provides a constant
threat to the strengthening of democratic institutions as they were
visualized in the Indian Constitution.
From an economic point of view,
underutilisation of available labor would appear to constitute at least a
temporary loss of resources that might be used for economic growth.
On
the other hand, employment as an objective in itself may well be selfdefeating in the pursuit of accelerated income growth.
Each unit of labor
tends to be more productive as it is combined with increasing amounts of
other resources.
Given the relative scarcity of some of these other
resources (land, capital), it may well be that a larger increase in domestic
product can be achieved by the application of available capital, say, with
only a limited part of the unutilized labor.
A miximum increase of output
in a given period may thus be inconsistent with a maximum increase in
employment.
(The gap between maximum output and output with more "labor
intensive" methods may be even larger, if the latter method in fact turns
out to be more capital intensive per unit of product than is the labor
saving alternative).
Vhile dangers of such inconsistencies can be exaggerated-
1. This calculation assumes the same product per employed man in nonagricultural activity as in 1953/54, and a someuhat higher productivity in
agriculture. The over-all increase in output per man is of course due to
the higher output per man figures in non-agriculture, and the relative shift
in the labor force away from agriculture.
10
at least in an economy like India's~--- they should be borne in mind in
discussing alternative possibilities for using
india's
additional labor
and other resources.
Before looking into the needs and possibilities of sectoral expansion
in output and employment, it may be of interest to examine generally again
the investment implications of a growth in output to Rs. 12,665 crores in
1960/61.
If use is made of the 3:1 capital-output ratio of the Planning
Commission's First Five Year program, the Rs. 445 crores of additional
income each year would require new investment of Rs. 1335 crores, or
8000 crores for the next six years.
1955/56, the present year, is included
in the First Five-Year Plan period.
If it is assumed that about 750 crores
of new investment (private, as well as public) materialise during this
year, a Second Five Year Plan which-hopes to make an appreciable dent in
current unemployment levels would appear to require a total investment of
Rs. 7250 crores, more than twice the level estimated for the first program.
On the average, this would mean net investment of about 13 per cent of
domestic product during the five years after 1955/56.
(Some of this invest-
ment might of course be financed from abroad, thus reducing the investment
burden on domestic product. over the Second Five Year Plan years).
It is difficult, however, to state definitively that these employmentoutput goals could in fact be accomplished with a net investment program
of Rs. 8000 crores over the six years.
1.
See below, pages 29.31.
The Planning Commission's capital.
11
output ratio of 3:1 was not based upon experience in India.l
Uhile it
was applied throughout a 25 year period in the Commission's model for
Indian grcwth, i.e., a period over which the pattern of Indian output was
expected to change significantly from its pre-Plan agricultural concentration,
the argument for the low figure stressed the rural and agricultural
possibilities contributing to low ratios.
Vith the rather dramatic shifts
out of agriculture suggested for 1960/61 (Table III)--and the importance
of housing construction in the program--one might appropriately question
whether: the 3:1 capital-output ratio is not too optimistic0
Certainly the
Rs. 3600 of capital stock per employid worker in non-agricultural activities
(the figure implicit in this assumption) would seem to be low even for
relatively light industrial activity.
suggested a 2
On the other hand, Mr. Deshmnkh has
/2:l ratio for new intestment in non-agricultural activity
(and even here, apparently in other jursuits than those characterized as
"small enterprises").
However, the Finance Minister's over-all investment
targets also include a sizeable allo :ation for agriculture.
as a whole, he implies a capital-outn)ut ratio of 4.4:1.2
For the economy
On this basis, the
1. On the other hand, such a :.atio is reasonably consistent with a) the
facts that per capita product in real terms had not changed between 1931 and
1951 (see V.K.R.V. Rao in Capital &ipplement, Dec., 1954, p. 15), and that
population has been increainIby about 1.4 per cent per year in that period,
and b) the belief that savings and investment ratios have been about 5 per
cent of domestic product.
2. From Mr. C. D. Deshmukh's sitatement in the Indian Parliament, Dec. 20,
1954, as reproduced in Indian Trade and Industr
Feb. 14, 1955, pp. 42-43.
It may also be noted that the 4.4:1 ig
,ratr
than his 2.5:1, or the
older 3:1, has been used by other planning authorities. Thus, the Finance
Minister of Pest Bengal, in his budget speech of February, assumed that
Rs. 700 crores would need to be inrested in that state to generate an income
flow of Rs. 160 crores. Actually (and for reasons not clear in the reports
available here), Dr. B. C. Roy doubles the investment estimate thus derived.
It is not known whether the Rs. 1400 crores figure is due to the "big-industry"
nature of West Bengal, or (as is more probable) to the fact that provision
must be made in Bengal for large immigration from other provinces over the
period of the Second Plan, In any event, a Rs. 1400 crores investment seems
to correspond to an increased flow of income of Rs, 160 crores.
12
investment of Rs. 7250 crores suggested above would be increased to Rs. 10,600
crores for the Second Five-Year Plan period, 1956/57-1.960/61.
(on assumptions
comparable to those of page 10 above, this investment would average almost
18.5 per cent of domestic product).
Lower capital-output ratios may well be pertinent for the Indian economy
over the next five or more years.
They are certainly being used in the
provisional programs suggested by various Indian organizations.1
The point
here is merely that past experience provides no strong case for lower
figures.
Their use should probably be argued on the basis of a specific
pattern of investment needs in which relatively low requirements for inputs
of capital can be domonstrated.It should be noted that the Rs. 7250 crores stand in some contrast to
the range of Rs. 5000-6000 crores suggested by the Finance Minister.2
is at least the possibility that the present figure, based as it
3:1 ratio, is too conservative.
There
is upon the
As has been indicated, the shift out of
agriculture and the rural areas means not only more industrial job opportunities,
but also some expansion in housing and overhead facilities (education,
transportation, in public health, etc.) in relatively concentrated population
areas.
Here,, capital-output ratios might be even higher.
It would therefore
seem realistic for the Government of LIdia to plan an investment program of
at least Rs. 7250 crores for the 1956-61 period.
1.
See below, page 35 and Appendix.
2. Given the higher capital-output ratios in his calculation, his
lower estimates are attributable to differences in employment targets. As
was suggested above, (footnote, page 4) the figures used here appear to be
consistent with employment objectives for the next decade.
3.3
B.
Output Targets for 1960/61
The preceding estimates of income (and investment) were based upon
an employment objective.
Despite the fact that output per worker in India
is today higher in non-agricultural activities (taken together) than in
agriculture, it
still is low, relative to productivity levels in countries
with more developed economies.
The assumptions made might thus be considered
incompatible with the objective of a program of economic growth.
In any
event, an income target of Rs. 12,665 crores for 1960/61 certainly constitutes
a conservative goal.
Furthermore, only general categories of employment
opportunities were considered-agriculture vs. non-agriculture, urban vs.
rural.
Neither employment possibilities nor the achievement of a necessary
and desirable bill of final products can be assessed without a direct approach
both to over-al
expansion and to relative emphasis in different sectors.
The employment goals must clearly fit into a total development program.
The reconciliation of requirements for labor, for goods and services,
and for investment is obviously a major task now before the ladian Planning
Commission as it finalizes a draft of the next five-year plan.
As of now,
there are only general official indications of the pattern and magnitude
of the Second Plan, with occasional mention of a specific goal in individual
sectors.
Recent statements, both by the Prime Minister and the Finance
Minister, suggest that the final draft will plan for an increase in output
of about 5 per cent annually, and for new employment for 10 to 12 million
additional persons.
These are consistent with estimates published in
April by Professor Mahalanobis of the Indian Statistical Institute,
In
1. Although the Indian Statistical Institute is primarily engaged in
governmental research, its estimates are not official, (Only summary figures
of the Mahalanobis plan are available here as of mid-May,)
314
addition, there are estimates prepared by other private organizationsnotably by representatives of Indian business groups-which will inevitably
influence the final form of the next plan.
Thus, the Economic Intelligence
Unit of the Indian Institute of Public Opinion (IIPO) has outlined a program,
as has also the Federation of Indian Chambers of Commerce (FICC).
Insofar
as the latter two are based on the views of members of the private business
community, they probably reflect analysis from roughly the same output
objectives for 1960/61.1
(See Appendix)
There is available here only occasional information on the detailed
targets of output over the second five--year plan period.
On the resource
side, there are some indications of the extent to which it is anticipated
that public savings can be ecpanded (whether through surpluses on current
account, borrowings and foreign grants, and overmall budget deficits).
Iftile there are some rough approximations of the structural interdependence
of the Indian economy in recent years, there is little
on the input
requirements for expansion of capacity in those sectors where this may- be
necessary.
On this last point there is for. India the important question of
whether certain forms of capacity expansion (some blacksmiths as against
a modern machine shop) may permit a more efficient flow of production, over
a decade say, given the abundant labor and limited capital that will be
available to the country in that period.
For India too, the very fact that
current output leaves significant labor and capacity unutilized (and the
fact that this unemployment has presumably been increasing over time) suggests
1. See Quarterly Economic Report, IP0, Vol. I. No. 3, Oct., 1954,
pp. 17-22; Vol. I, No. 4, Jan., 1955, pp. 13-30. The FICC estimates are
from a preliminary manuscript of Dec., 1954. This has already been modified,
perhaps extensively, but the new version has not yet been received here.
15
the need to examine the possibilities for altering the input-output
coefficients already estimated for the economy.
Under present conditions,
it would thus. appear that systematic use of input-output analysis or of
linear programming to obtain an approximation to the investment program may
be either impossible or questionable.
Pending further information on the
work now being done in India, it may nonetheless be worthwhile to examine
more carefully the pertinent data and relationships which are available for
such light as they can throw upon the scope and pattern of the next Plan.
1.
The Output Target for 1960/61
Official statements, and most of the unofficial plans, anticipate an
annual increase of domestic product of at least
1955/56 through 1960/61.
5
per cent each year from
Specific rates are shown in Table IV, along with
comparative figures.
Table IV.
Annual Rates of Growth of Net Domestic Product
Second Plan
First Plan
Pre-Plan
1930/31 - 1950/51:
1.4%
Actual
(4 yrs)
3%
As given in
First Plan:
2.8%
1948/49 - 1950/51:
1.1%
Plan
2%
As in Table I1*
above:
3.9%
Official
statements:
5.0%("about")
r
Mahalanobis:
5.0%
FICC:
6.2%
IIPO :
9.1%
For 6 years, beginning in 1955/56.
** If account is taken of the higher starting estimates, this figure is
educed to about 6.5%.
(See Appendix)
1. For. example, through significant shifts in techniques involving
very little capital (rice production, road construction) and/or through
altering the relative importance of different commodities in the final
bill of goods (khadi vs. millmade cloth, bicycles vs. cars).
16
There is
a clear contrast with pre-Plan performance of the Indian economy.
There is also a striking contrast with the model of growth anticipated
when the First Five Year Plan was formulated.
If actual performance over the past Plan years is combined with the
5 per cent figure being suggested for the Second Plan, the growth model
implied would indicate a doubling of per capita net product by 1967/68
(rates of population growth remaining unchanged).
Such a performance would
compare most favorably with rates of growth in the U.K., the U.S.,
Japan in the first stages of their development progress.
and
It may be comparable
with achievement in the U.S.S.R. in the years from 1928, although the
Second War apparently delayed a doubling of per.capita income until about
1950.
Movement along such a curve would imply for the Third Five Year Plan
years an annual increase in net domestic product in excess of 6 per cent-the levels currently prevailing in the Soviet Union.
The desirability of such rates of growth for India in the next five
years cannot be questioned, and a governmental decision to attempt them
would be heartening.
Two groups of considerations are relevant here.
First
is the question of the extent to uhich the pre-conditions for such rapid
rates of growth already exist in India, or are about to appear.
Second
are the possibilities for growth inherent in the present state of the Indian
economy, with its relatively large reserves of undertilized labor and,
perhaps to a smaller extent, of physical plant.
India's domestic product has expanded more rapidly than would have
been suggested by the rate of new investment over the past few years. 1
1. There is, however, some question about the actual level of new
investment, particularly in the private sector. On this latter, see
B.M. Birla's speech to the 28th Annual Meeting of the FICC (March 5, 1955) and
17
The Planning Commission itself has attributed a major share of the income
expansion to favorable weather conditions.
Voluntary savings do not appear
to have progressed along the lines postulated by the Government of India in
the formulation of its (less ambitious) development outlook in 1951.
Public
investment in recent years has been financed to a greater than anticipated
extent (over 50 per cent) by government deficits.
Greater reliance is
expected to be placed on this method of financing in 1955/56, and perhaps
over the Second Plan period.
The channeling of resources into investment
by this process is desirable--at least so long as it does not compete with
private demands for the same resources for consumption or for private
investment.
There is no assurance, however, that competing demands may not
arise; these might necessitate the introduction of new procedures to make
possible the required volume and pattern of investment.
Finally, so long
as the Indian investment program remains a combination of private and
public investment efforts, the climate of opinion in the private sector can
be expected to influence the future course of private investment.
The
"degree of mix" problem does not yet seem to have been resolved to the
mutual satisfaction of both sectors.I
These observations suEgest both the importance of fortuitous events
in the level of income already attained and the ability of the Center to
convert a large share of these rains into real capital formation.
The
(continued from p. 16)
similar statements of the FICC, as well as of other business organizations.
On the view above, see Planning Commission, Progss Report for 1953-54 and
Malenbaum, "India's Economic Prrogress Under
Flan, The Economc Weekly,
Sept. 11, 1954.
1. See discussions following the Prime Minister's Avadi address to
the All-India Congress Committee, the reaction to the Tax Enquiry Commission
Report, the Fourth Amendment, etc.
18
public investment program has increased impressively to a rate almost
twice the pro-Plan level by early 1955.
,rganisation
But it soems clear that governmental
and administration for development have not yet been stepped
up to the point where full advantage has been taken of the resources
available for investment, or even to where investment has reached the levels
planned.
Moreover, the problems of a more active private sector, both with
respect to consumption and investment, have not yet been fully met.
On
both the resources and the use side, pro-conditions for accelerated growth
have still to be institutionalised
Despite the progress already achieved, there has not been a reduction
in the level of unemployment.
Measurement is not possible, but a growth
in unemployment is generally believed to have taken place.
underutilization of industrial capacity apparently persists.
In addition,
A recent
study, 1 using data from 1946 through 1953, reports that throughout this
eight-year period, and particularly in recent years, existing industrial
capacity has been idle:
Detailed figures of capacity are available for all four
years between 1950 and 1953, for 78 industries. out of
this, 28 industries were throughout working at less than
60 percent of capacity; 12 industries were working at
less than 60 percent of capacity for a period of three
years. Thus, in all 40 industries out of a total of 78
were working at less than 60 percent of capacity for a
period of three years or more. In other words, about 57
percent of the industries worked for a period of three
years or more at less -than 60 percent of capacity.
The expanding governmental development program seems to have had relatively
little effect upon these, and perhaps other, *reserves" of resources that
1. C.N. Vakil, "Indian Industry's Installed Capacity and Present
Production Levels,' Ca ital Dec. 16, 1954, p. 19. The dAta given do not
list the specific iri
s nor their size, but information on these must
be obtainable. (I have written Prof. Vakil for details)
19
might somehow be mobilized for investment.
Conceivably, a development
effort might be organized which could, on the basis of fuller use of such
resources, bring about a dramatic increase in rural product, both
agricultural and other, and to a lesser extent in urban industrial output.
This would without doubt require an intensification of government participation in organizing change in rural areas, as well as larger direct
participation in making possible the use of specific industrial installations.
If successful, the results achieved should be considered as a discontinuous
upward movement of the level of output, rather than as one stage in a longerperiod pattern of continuous growth along some smooth curve.
After a five
(or ten) year period of revolutionary change in the organi;ation of output
in sectors where underutilization has tended to become chronic, annual rates
of growth might then proceed at a more normal and initially slower pace.
It is difficult to venture on how much of a contribution might be made to
output.
On the surface, however, an average increase of product by 5 per
cent over each of the next five years would seem more attainable if such
an intensive (one-shot) effort were added to existing plans for orderly
expansion.
On this basis, it is assumed that a net domestic product of about
Rs. 13,250 crores (1948/49 prices) wil be achieved by 1960/61, an expansion
of 32.5 per cent in six years.
This figure is in Lieu of the Rs. 12,665
crores suggested in Table III above.
If,
as seems probable, 1954/55 product
is somewhat higher than the Rs. 10,000 crores assumed in that Table, the
1960/61 target would be correspondingly raised.
Per capita income would
reach Rs. 325, with an increase of some 3.5 per cent in each of the six
20
years.
Over the period of the second plan, domestic product would thus
expand by about Rs. 3000 crores, an average increase of almost Rs. 600
crores per year.
2.
The Sectoral Pattern ofutt
With the large upward movement, there would also be important shifts
in the sectoral composition of product.
In general, agriculture and allied
activities would increase less than other sectors; industry, mining, etc.,
would increase much more.
The tertiary sectors might also contribute a
different share of the total output.
The new sectoral pattern of output
in 1960/61 (and the relative amount of income generated in the different
sectors from now on) would need to be markedly different from those of the
past.
Tables V and VI show broad categories of income, and of changes in
income, from 1931 and for sou
First Plan years.
It is clear that a shift to new patterns for the expansion in income
must counter long-time trends in the patterns of growth.
Over some twenty
years, both agriculture and industry have tended to become less important
in the Indian economy, while the relative importance of services, transport
and trade has grown.
In this last respect, Indian development over these
years seems to parallel economic growth patterns in the West.
The sole
difference is that, instead of the tertiary sectors expanding with per
capita income, in India they grew while income scarcely matched the rate
of population growth.
1a V.K.R.V. Rao adjusted his 1930/31 figures for British India, thus
making the 20-year comparison possible. de characterizes India as a "static
economy in progress." This experience warrants careful study. The population
movement to the cities was encouraged not only by a declining agriculture
(and cottage industry), but also because these sectors were increasingly less
efficient. Modern industryus rural markets were limited. Urban labor found
limited employment opportunities in the factories0 Service sectors expanded
because of the facility of entry. T he larger share they contributed to
the national product probably meant that, on the average, people could acquire s
less desired basket of goods for a rupee of the same value in 1951 as in 1931
21
Table V. Sectoral iomposition of Income Growth
Rs. crores - Past Periods
Increase in:
.
1933/32-1950/51
1948/49- 1950/51
950/51-1953/54
Agriculture, etc.
1090
47%
90
45%
410
48%
Mining, Industry
260
11%
0
0%
230
27%
Trade
580
25%
60
30%
110
13%
Services
380
17%
50
25%
100
12%
Total Increase
2310
100%
200
100%
850
100%
Average annual
116
283
100
increase
Source: 1931/32, V.K.R.V. Rao, Changes in India's National Income,
Capital, Dec. 1, 1954.
National Income Conittee
1948/9-157,
1953/54, Malenbaum, op. cite
Table VI*
Income by Sectors (Percentages)
1930/31
1948/49
1950/51
1951/52
Agriculture, etc.
52.7
49.0
51.3
50.0
48.?
Industry, etc.
17.7
17.0
16.0
17.2
17.6
Other
29o6
34.0
32.7
32.8
33o7
Total
100.0
100.0
100.0
100.0
100.0
Sources: 1930/31 - V.K.R.V. Rao, OP. cit.
1948/49 - 1951/52 -- Nato1naT"Income Committee
1953/54 - balenbaum, m. cit.
1953/54
4
22
The evidence for 1951 through 1953 does show a relative growth in
the contribution of industry to national income.
On a percentage basis this
sector had almost regained the importance it had in 1930/31, although it
is reasonably certain that, within the total, large scale industry had
increased relative to small industries and handicrafts.
obviously associated with this changed pattern.
Two factors are
First is the circumstance
of higher per capita incomes (up about 4-5 per cent from 1950/51)--stimulated
in large part by the favorable developments in agriculture in these years.
Second of course is the fact that India had embarked upon a conscious effort
to expand national income.
This last did contribute also to the improvements
in the agricultural sector, although major credit is apparently due to
favorable monsoons.
While opinions differ on the "shortfall" of investments
in the private industrial sector in the early plan years, it is in no case
argued that such investment exceeded the levels of the pre-plan period.
It
seems clear that the increased percentage in Table V reflects more the
greater utilization of existing industrial capacity than it does a relative
growth in new facilities for manufacturing.
Improvement in the agricultural sector bears more or less directly
upon over 80 per cent of India's population.
That this should provide a
stimulus to the industrial sector, both rural and urban, is not surprising
(although it would be good to analyze this in terms of demand elasticities
in rural areas).
!-at is surprising is the absence in these sunary data
of any obvious effects of the industrialization process in India since
1930/31.
The information readily available is not adequate for careful
study of the shorter-period developments since 1930/31.
Expansion and
diversification in large scale industry were taking place; people were
23
moving from the rural areas.
Productivity in large scale industry, a
in non-agricultural activities generally, appears to be higher than in
agriculture.
In themselves, these, one might expect, vould have provided
the stimlus for over-all income growth relative to population, and for a
greater importance of net industrial. output in total product.
Apparently,
they did not.
Increases in industrial income in the last few years again point up
the underutilisation of capacity in Indian industry.
The persistence of
underemployed resources does suggest some answers to what the data of
Tables V and VI reveal.
It does not explain the growth in industrial
capacity over the past decades or the fact that this expansion was not
fully used to meet the needs of a poor country.
Presumably, the next Plan will show significantly different sectoral
patterns from those in the preceding tables. 1 In the past, expansion of
industrial capacity was not accompanied by a growth in the relative importance
of this non-agricultural sector.
Trade and services have grown disproportionately
In the future, the relative importance of tertiary activitiesas well as of
agriculture, must decline as the broad category of idning, industry, etc.,
expands.
Given the historical evidence, it
new patterns will not just happen.
is reasonable to assume that the
The need for direct action to this end
must complement the direct action needed if total product is to expand by
about
5
1.
per cent each year.
2
This is clearly suggested in the plans outlined briefly in the Appendix.
2. See page 19. As was suggested above, there is room for careful
analysis of the factors which brought about the pattern of development in India
over the past decades. Such study might provide helpful guides to the kinds
of actions needed on the part of entrepreneurs and consumers, of the government
and private sectors, if the changed patterns are most readily to be brought about 0
24
A possible pattern for 1960/61 is shown in Table VII, along with
the changes from 1954/55
1
The specific patterns assumed are consistent
with the general considerations above.
berever possible, use was made
of the proposals in plans which have become available in India over the
past months (See Appendix, and discussion of some specific sectors below).
Table VIII corresponds with the past materials of Tables V and VI, and with
that of other plans as shown in the Appendix.
The over-all domestic product target in Table VII is of course the
estimate discussed in preceding pages.
It assumes essentially the 5 per
cert annual rate of increase suggested by Nehru and Desla-ldi.
considered a fuller-employment target.
It is also
In other words, the difference
between Rs. 33,250 crores and the earlier estimate of the minimum increase
compatible with certain employment objectives
higher productivity per worker.
2
is taken to be a gain through
The sectoral breakdown of Table VII waa
constructed in part on the assumption that employment opportunities would
somehow be found for 21 million persons over the six year period.
It has
been argued above that a larger amount of direct participation by government
was probably a pro-condition for assuming a 5 per cent annual increase in
domestic product.
"construction,
In particular, 'small enterprises" and to some extent
served as residual categories in the construction of Table VII.
They provide the residual income (for a total increase of Rs. 3250 crores)
and the residual employment (for a total of 21 million new job opportunities)-*
1. For that year, the total product was taken at Res. 10,000 crores,
with sectoral breakdowns as given in the CENIS study for 1953754. This
corresponds with the treatment in Table III above, (The official estimates,
by sectors, now available for 1953/54 have not yet been received here).
2.
See pp. 7 - 9
above.
25
TABLE VII
Domestic Product by Sectors 1954/55-1960/61
RS., crores, 1948/ 4 9 prices
19455
|
Increase
6 Years
Amount
Agriculture
4870
Inds~
,1760
tc e
Factory Estab.
Small Enterp.
Construction
710
770
200
1550
(75)
(100)
j
1960/76-1
3310
530
1240
960
(1480)
(450)
430
2260
Trade and Commerce
Rrs. and Corman
Banks and Ins.
Commerce, Other Transp.
1830
80
1490
(16.5)
260
1830
Services
Prof.
Govt.
1540
(30)
470
2010
(50)
(neg.)
230
(35)
150
690
150
570
3250
13250
Domestic
House Prop*
Total
520
460
140
420
10000
(32.5)
10
26
Table VIII.
Domestic Product, 1960/61; Sectoral Composition
of Inorease 1956/5? - 1960/61
(Re. crores, 1948/49 prices)
A. Omnestic Product
B. Sectoral Composition
of Increase - Second
iVe Yar PlMan
Rs. crores
%
Rs. crores
%
Agriculture
5670
42.8
740
25
Mining, Industry
(and Construction)
3310
25.0
1430
48
Trade
2260
17.1
4oo
23
Services
2010
25.1
0
111
Total
13,250
1000
3000
(Av.600)
100.0
The figures of the tables inevitably suggest a precision which they
cannot have, even as projections.
information available here.
The argument is based upon the limited
Moreover, given the incomplete nature of
these, no attempt has been made to go below the categories listed In
Table VII.
-
The composition of agricultural output, of industry, etc.,
and the interrelations among their parts may condition
27
the output of the sectors as a whole.
At best, the suggestions here
are preliminary orders of magnitude, which appear to be consistent with
general demand (including investment) possibilities, and with employment
requirements.
Agt
Income growth in agriculture was taken at twice the rate
of population increase.
If the entire increase were in food alone, this
would provide for about a 10 per cent expansion in per capita food
consumption (as against a 23 per cent increase in per capita product).
Actually 87 per cent of India's agricultural output consists of non-food
items; this ratio will probably decline with increased industrial demand
for the products of agriculturt.
This would mean a smaller percentage
increase in per capita food consuzptIonm--perhaps 7 per cent or 8 per cent.
Admittedly, this is a low increase, given the nutritional case that can be
made for an expanded and improved dietary.
On the other hand, there is
some basis for associating an increase of 7 to 10 per cent in food
consumption with a 2C0-25 per cent increase in domestic product. 1
Indian plans seem to envisage a larger expansion in agricultural
product by 1960/61--with increases ranging from 20 to 25 per cent above
current levels (See Appendix).
Presumably, therefore, it can be expected
that the lower increases assumed here are capable of achievement.
Insofar
as expansion in capacity for agricultural output does vary with the
1. On the basis of the figures in this paper, domestic product would
increase by Re. 60 per capita over the six year period, consumption expenditure by about Rs. 45. If 4o per cent of this increase were to go to food,
food consumption would increase by 9 per cent per capita. (Statistical
demand relationships in India are currently being studied by the Indian
Statistical Instituteon the basis of the sample survey material4
28
investment of goods and services in relatively short supply in India, there
would appear to be a case for a heavier concentration in the non-agricultural
area.1
Trade-and Services:
The relative growth of these sectors in past
years has already been noted.
As is seen in Table VIII, these two sectors
show relatively small contributions to the expansion in income over the
six year period.
1950/51 level.
In 1960/61, their share of domestic product is below the
However, important components in them (and mostly those
which did not participate in the past general growth of the trade and
service sectors) are shown with relatively large expansions.
Notable here
is transport and communications (65 per cent increase),home property
(35 per cent) and government services (50 per cent).
The first of these
was assumed to increase at twice the rate of domestic product as a whole.
This is consistent with the expansion suggested by the FICC and the IIPO
(but smaller absolutely, given their larger expectations for increases in
total output).
House property income is expanded more or less with total
product; it reflects also the increase in urbanisation.
!-ith respect to government services, earlier discussion has made clear
the emphasis placed upon a greater role for the public sector.
It is
assumed that community activities will have to be stepped up, both with
respect to coverage and depth. If the anticipated levels of output from
construction and small scale enterprises are to be achieved, additional
public employees in Indian villages uould seem to be essential.
The
specific increase selected is an arbitrary ones, and is meant to give
1. See below, pp. 3I-40.
29
dramatic content to the importance attached to the government's role in
a major development push over the years until 1960/61, (The increase has
been calculated from a figure of additional employment.
1
) Finally, other
components of the trade and services sectors have been increased little,
usually by half the rate of erowth of total domestic product.
:
For the organised components of this sector, the 75 per
cent expansion in income over six years may be compared with a 67 per cent
increase for five years in the Mahalanobis proposal; it
is significantly
smaller than the absolute (and relative) expansion for these activities
contemplated by the FICC and the IIPO.
Given the need for larger outputs
of investment goods and for increases in per capita consumption of
consumer goods produced by factory establishmets, a large expansion is
obviously in order.
In the published plans enough detail is given on
possibilities of expansion and rise of output to justify increases of this
order of magnitude.
Estimated increases in the other sectors--emall enterprise and constructionare residuals, although a rough approximation to the construction component
is attempted below.
It
is really assumed that, through a large organisational
effort, output from small enterprises can be extended significantly.
Moreover,
such expansion offers the only possibilities, in India's present economic
situation, for increasing total product to the desired levels.
here will be relatively labor-intensive: it
Expansion
is essential both to provide
employment opportunities and to begin to create a broader and deeper market
in India for the products of industry.
Growth in small enterprises will be
in the urban areas, largely to complement large industries through the
production of components, perhaps through sub-contracts.
1.
See below, page 3 5 4
Growth will be
30
even more marked in rural areas, especially where non-monetary transactions
are still
important.
Here they will produce consumer and simple producer
goods for local consumption.
The argument is that where there are unfilled
needs--for shoes, clothing, housing, furniture, pots and pans, etc., or for
wagons and carts, simple agricultural tools, village roads, more schools,
and the like; and where there are local under-utilized resources-men,
work space, local raw materialsy-there, incentives, organization and an
essential increment of capital goods and raw materials can expand output
that will be absorbed.
Initially, at any rate, government Mst supply the
necessary leadership and such hard goods as are required.,
It is true that some such rural activities are now carried on in the
community development programs, and others are contemplated under expanded
small industry programs.
The former effort, while impressive, still needs
to be stepped up markedly.
Its shift in emphasis to agriculture needs now to
be balanced by equivalent priority to other aspects of rural life-iand by
the rapid increase of personnel assigned to these tasks.
Unlike much of the
new small-scale industry effort, there is here less intention to develop
urban or foreign markets for the new production in rural areas.
all of it
is for local use.
Essentially,
Indeed, it is assumed here that the large-scale
organized sector will meet any demand which it can fill.
In principle, there
should be no attempt to limit activity of the large, lower-cost sector,
either with respect to its present markets or those which it can develop.
-
The goal here is to reach needs not now being met by the organised sector,
needs that will not be met, given the limited real incomes and the low
growth potential in many rural areas under present conditions,
As output
from these*small establishments expands, it can be expected that demands
31
which it begins to meet will gradually shift to the product of the
organised sector.
Again, an attempt should not be made arbitrarily to
interfere with the "more industrialized" forms of output for which there
is effective demand now and as overho-all development progressos.
Ideally,
the expanded output from the small sector should be considered transitional
to a period when the organized sector in better able to fill
need for industrial product.
India's
In the Third Plan, for example, there might
thus be scope for a much greater relative increase in output and employment
opportunities in modern industries (and a tertiary sector which will need
to grow).
Table VII ventures an admittedly arbitrary breakdown between "small
enterprises" and "construction".
Apparently this latter category.-
reflecting at least some components of new factories, public buildings,
service establishments' railway track extensions, dams, houses, etc...--is
contained under a number of heads in Indian national accounts.
Here, the
bulk of them has been assigned to the broad industry sector: the items to
cover labor and entrepreneurial returns in construction are assumed to have
been included under the National Income Committee's "small enterprises'
(and are here separated out); the lumber, cement, steel, glass, machinery,
etc. are assuind to be covered under income from factory establishments.
Moreover, there are no official estimates of investment (neither net nor
gross).
Estimated output of the construction sector-whether for maintenance,
for new factories and houses, etc.-is not available from official sources?
1. Some support for the present treatment is provided in the fhalanbis
Plan document (or insofar as it is available here, i.e., in the April 22,
1955 issue of the Eastern Economist)* Here, for the first time to my
knowledge, 'small enterprises" appear as "household enterprises and construction."
(cont. next page)
32
Unofficial estimates of capital formation in pro-Plan years (as well
as sillustrative' data presented by the Planning Commission) are available
in some detail.
In pro-Plan years, these sources suggest that the construction
component of net capital formation may have aggregated some Ra. 200 crores,
(footnote from p. 31 cont.)
A single figare is available for both, and at a level which suggests that
it is in fact the old "small enterprise" category.
The treatment of *construction" in Indian accounts is not readily
followed. Thus, the 1951 Census reported about 1.6 million workers under
"construction and utilities." These constitute 5 per cent of all the non.
agricultural (and self-supporting) workers. In the National Income
Committee "working force" table, which is broken down to correspond with
the "industrial origin" table used in National Income Committee income
estimates, these workers are allocated among different sectors. Thus, about
757,000 of these construction workers have -been returned by the Census under
The National Income Committee,
"construction and maintenance-buildings.'
after estimating that some 10 per cent of these construction workers may be
indirectly in the employ of government (via contract arrangements, etc.),
allocates this percentage to "public administration" and returns the rest
in the industry sector. Presumably, then, private housing and factory
construction are included under the industry category(?). Almost 149,000
construction workers are returned under the Census category of "construction
and maintenance--road, bridges and other transport works.' The National Income
Committee allocates 1/3 of these to railways, 3/3 to public administration
and 1/3 to industry. There is no specific reference to 'construction and
maintenance-irrigation and other agricultural works' (114,000 workers).
Presumably, they have been allocated to agriculture, which would be under.'
standable if the bulk of their work was maintenance, as distinct from not
additions to the irrigation system, etc. Simrilrly for other construction
worker categories which are specifically reported by the Census.
A tentative inference is that the product of the construction sector,
so important as a component of capital formation, is allocated among the
sectors to the expanded capacity of which the construction sector contributes.
For new factory and housing construction, however, the sector is apparently
This tentative inference, drawn from the working force alloca'industry.'
tions of the National Income Committee, is not at all confirmed in the
National Income Committee's derivation of not product in the industry sector,
for example. (It is clear that more guidance is needed on the appropriate
allocations.)
1. See Mukherjee and Ghosh, Bulletin of the International Statistical
Institute Vol. 33, Part III, pp. 49-68; also AtreT"ive rear Plan pp. 107-108.
of
e a
the Indian Input-Output table preparI Yitute
Pulbic Opinion (Quarterly Economic Report, Vol. I, No. 3, pp. 26-27).
33
(This figure would be increased by about Rs. 160 crores if account is taken
of rural construction which was non-monetized, and presumably undertaken by
farmers, small industry owners, etc., in their spare time, and without any
significant outlay for materials.)
The first figure itself is about 45 per
cent of total net monetized investment in those years.
(All construction
would be more than 60 per cent of the larger investment figures, i.e.
including the non-monetized component.)
There is little doubt that this
construction figure increased during the First Plan period.
While data are
not available on this point, it seems clear that private investment (other
than that in organised industry) .ent
up in the early Plan years.
is a large part of this non-organised investment.
Construction
The Plan itself called
for increasds in public construction activity, in agriculture, industrial
enterprises, railways, etc.j it is not known here how much did in fact
occur, nor the direction of changes from the pre-Plan level of activitya
In its input-output table for 1952/53, the Indian Institute of Public
Opinion indicates a domestic product from construction of Rs. 251 crores;
it
suggests in addition some Rs. 20 crores for "rural non-money investment."
These estimates are certainly in the right direction.
In Table VII, the construction estimate of Ro. 200 crores for 1954/55
is to be taken as exclusive of hard goods used in the building of capital structures
By 1960/61, this item is assumed to increase to Rs. 450 crores, with a total
contribution to net product over the six years of Res. 2000-2400 crores.
This estimate encompasses not only housing (annual construction of about
800,000 new urban dwelling units for an urban population increasing to
levels suggested in Table
IC, and some 700,000 new units in rural areas),
314
but also factory buildings, hospitals, other public construction, etc. 1
C. Employment, 1955/5-1960/61
Two important aspects of a program along the above lines require some
consideration.
Will the volume of investment be available, and in the form
required (foreign exchange, for example), to permit creation of the
additional capacity needed for the final product of Table VII?
First,
however, what are the possible employment implications of such a program?
In Tables IX and I are presented what are considered to be some
plausible possibilities on the employment side.
The starting point for
the calculations, the 1954/55 estimates shown in Table X, are no more than
careful guesses.
Totals are consistent with the figures of Table IIB
and the unemployment picture described in pages 4 and 5.
Allocation of
working force by sectors follows the general pattern given by the National
Income Committee for 1950/51, with adjustments made in the light of the
growth of product during the early Plan years and of occasional employment
figures (for factory establishments, for example).
A rough Indication
that these guesses were not wholly out of line is given by the correspondence
between average net output per man employed in 195W/55 (column 2 of Table IX)
and the official computation for 195o/51.2
1. The Ra. 2000-2400 crore range, ausented by the cement, steel,
lumber, etc. used in construction (and output of which is included In the
factory establishment sector) probably imply total new construction of
R.
3200-4000 crores over the six year period.
2.
National Income Committee Final Re rt
p. 108. Adjustment must be
made for (1) the fact that present estimats exclude the unemployed, wh1e
the National Income Committee's refer to the entire working force, and (2) the
1948/49 prices of Table IX, as against the current levels for National Income
Committee.
Vhen adjusted, the 1954/55 figures reflect the upward movement
due to economic improvement since 1950/51.
a
Table IX
Incremental Labor Productivity, 1954/55-1960/61
(All values in'1948/9 prices)
-V.
Add'l. Labor
(millions)
(Rs.)
AverigTeincremental
1954/551
6 Years
(2)
(3)
(1)
.......
..klA=
-
Agriculture
Industry, etc.
Mining
Fact. Est.
Small Ent.
Constr,
Trade and Commerce
Ryse and Comm.
Banks and Ins.
Commerce,
other Transp.
Services
Prof.
Gov' t
Domes tic
House Property
Total
kwm--
Net Output/Man Eployed
(4)
i i
495
100
Add'l. output, 1960/61
(Ra0 crores)
00
1550
1200
60
1.4
1200
1140
2625
5.6
835
3750
2,5
1000
1270
1000
530
710
250
2.5
1740
1730
430
100
1740
1730
1.5
1740
1740
260
2.9
800*
870
1100
1100*
560
1150
1150
560
470
80
230
10
150
735
1550
3250
.5
.7
2.0
02
-a
21.0
170
*Excludes income from "house property," where employment negligible0
4
Table X
Additional Enployment, by 1Sectors,
196/61
(Allion persona,)
mplays
Pric,
98o4
to
o5-arg;g~TFe
Elie
109J
-SAW--..ft
Fact. Est.
Small Ent,
Constro
2,7
942
20
(90)
l0800
(962
24o6
2505
(97
4o2
153
4o7
(98)
(97)
(96)
10,3
22
(91)
2o5
40l
1408
405
1.05
1,6
(94)
100
2o45
26
(96)
1005
1009
(96)
1516
16o2
6o7
700
(96,
(06)
.)06
5) o
Trade, Commerce
Rys. and Comao
Banks, Insao
Cormerce and
Other Transo
1005
900
1C,2
(88)
Services
Prof o
Govfto
Domestic
12o7
140
(291)
(88)
..
10J4<O0
loh
0
Mining
Total
(6 Ye ars)
163
Industry, etco,
1960/ 6 1
Additional
95465
I
29
600
6.8
42
2o5
4,2
3A0
(100)
(84)
2.0
o2
6.2
2o7
6o2
30
136.2
151,2
(90)
21.0
157o2
163.2
_....
.7
(10)
(90)
(96
37
Twenty-one million persons--12 million new members of the labor force
and 9 million of the currently unemployed-are then allocated among the
sectors of the economy, as shown in the first column of Table I.
Consistent
with the preceding discuseion of income expansion and of the historical
development of the tertiary sectors, only about 25 per cent of the new labor
force is assumed to find employment in the trade and service categories. 1
(Moreover, incremental productivity in these sectors does not show significant
increases,)
Also, almost half of the new workers are in mining, industry,
etc., with 80 per cent of these in the unorganized sectors.
If the entire increment of product, Ro. 3250 crores, is taken to be
associated with the newly employed, their incremental product works out to
RB.
1550 for the economy as a whole.asomewhat more than double average
productivity in 1954/55. 2
However convenient such an association, it is
more true with respect to factory establishments, for example, than to
small enterprises and agriculture.
The development program would more
nearly tend to broaden the first sector.
The increase of almost
50
per cent
in the output per man in modern industry could be assumed on the basis of
the new and more modern factories that will be established.
For the other
two sectors, capital and organization would serve importantly in raising
productivity of all the persons engaged, as well as of the newly employed.
1. This treatment differs gregtly from that of the FICC-and IIPO
formulations, where, as the A ndix shows, labor is allocated generously to
the tertiary sectors. (Materia available here on the ISI formulation does
not include allocation of additional labor.)
2. A comparable computation for the first three plan years gives an
Here, however,
incremental product of Ra. 2040 per worker. (See Appendix).
there was the major gain from the favorable weather. Moreover, estimates
of actual additional employment in these years are essentially assumptions.
38
For agriculture, for example, an incremental product of about 3 times the
average simply reflects the progress to be made on all the farms in the
country.
Similarly, to some extent, for small scale industries.
General considerations such as these, technological information on
the labor components of expanded product--and reasonable guesses--permitted
some approximation to a sectoral figure either for new employment or for
incremental productivity.
'ith the breakdowns for incremental output
already available from Table VII, columns (1) and (3) could be completed.
The final employment estimates for 1960/61 of course reflect the
reduction in unemployed by 9 millo
persons.
As might have been anticipated,
there is actually a small reduction in the agricultural working force
(despite an increase in employment, and the large natural growth).
IMile
the rural-urban components of Table I are not shown, this movement from
agriculture is to a much smaller extent a movement from the rural areas.
Opportunities there are created in small-scale industry, in the many phases
of construction, in trade, and in government and other services.
By
1960/61, the rural-urban employment breakdown would approximate the ratios
of Table IIC.
go.
39
D.
Investment, 1955/56 - 1960/61
At the usual ratio of 3:1, the expansion of product to the level of
Rs. 13,250 crores would involve a net investment of Re. 9750 crores over
the six year period.
The draft plans currently being discussed in India
generally use much lower capital-output ratios: 0.84 for the IIPO; 1.7 for
the FICC (preliminary draft); and apparently 1.95 for the lahalanwbis
program.
However-again, from what may be the limited documentation
available here--the case for such low ratios does not seem to be argued
fully in the proposals.
In any event, a low ratio for the Second Plan
with its heavier concentration on industry scarcely seems defensible on
the grounds "that the return on industry is considerably higher than that on
agriculture, and this return is available in a much shorter time.'
2
Simultaneously, the Mahalanobis program provides for a five-year increase
of income in "agricultural and allied pursuits" of Rs. 1060 crores, with
an investment in "agriculture and irrigation" of Rs. 950 crores.
This
implies a sectoral ratio for agriculture of .9:1, for investment which
includes the expansion in irrigation works.
There would appear to be little body of agreed thought and experience
on the difficult problem of "how much investment for how much income."
The
more one looks, the more impressed one is with the case for higher rather
than lower ratios.
1.
Increased steel capacity and output feature large in
See above, pages 10.-12.
2. IIPO Quarterly Economic Report, Vol. I, No. 3, p. 19. The IIPO
gives a 1,2:1 figure, but actually seems to have reversed the ratio in its
computations.
a
40
the industrial expansion of all the programs.
On the roughest basis, an
additional million tons per year adds some Res. 30 crores to product and
requires about Re. 150 in new investment.
Even more, India's growing
product over the next years must include a relatively large volume of
output in the form of structures-the houses, factories, shops, dams, etc.,
mentioned earlier (in the discussion of the needed expansion in construction
The total of this output must be matched by investment.
This line of
reasoning leads to high investment requirements relative to the new income
flows.
On the other hand, the type of program visualized here does attempt
to exploit underutilized resources.
Insofar as these exist in the modern
industrial sector, this would serve to moderate the (high) requirements for
new capital that would otherwise prevail.
For the less organised sectors,
and especially the non-monetized parts of these, such a program should serve
both to increase product with relatively little monetized investment and
perhaps also augment the application of non-monetized investment; i.e. more
labor inputs can be obtained "free" for oombination with cement provided for
new construction, and more clay and lumber might be available for investment
which would not otherwise have been used.
lowering the capital-output ratio.
These considerations work toward
They also suggest that the ratio computed
with only monetized investment may be significantly lower than one in which
monetary and non-monetary investment is combined.
Howvr artificial from
a technological point of view the former ratio is,
it may be the relevant
one for an economy which keeps account only of monetary investment.
1.
See above, pages 31-34.
41
Table I
Net Investment, 1954/55 - 1960/61
(monetised and non.mmonetisod)
Ra. crores
Total
Monetary
(1) Construction
Agriculture
Non-Monetary
3500
()
2000
1500
800
500
300
Mining
-(3
250
Factory Est,po
1600
Small Ent.
11o0
-
700
700
200
Transportation
850
750
Other
300
300
Total
8700
6100
2600
The figures of Table II represent some first (and crude) efforts at
approximating the investment requirements for the output program discussed
earlier.
The construction item is not co-terminous with sconstructiono as
shown in Table VII, since it includes hard gpods as well as expenditures
on labor and managment.
Factories and houses are in this total, as are
new roads, new dams and power stations, etc.
And expenditures for these
structures are excluded from the investment shown for agriculture, trans.
portation, manufacturing, etc.
(The sectorpl figures are thus not comparable
at all with those presented in the various draft plans.)
For agriculture
itself, the capital-output ratio assumed is 1:1; for mining, 4:;
for
factory establishments-a-even after allowing for increased use of existing
2.
capacity--3:1
for small enterprises, 2:1; and for transportation and
communication, 5:1.
Again, these figures must be considered as under-
statements, since they do not reflect the large investment in construction
activities, which bears upon all of them.
For the economy as a whole, the capital-output ratio averages 2.7:1.
For monetized investment only, the computation is 1.9:1.
Over a six year
period monetary savings of Rs. 6100 crores would need to be mobilized-about Re. 1000 crores annually.
This is well within the range currently
being considered by the Government of india.
If the above approximations
are at all within plausible ranges, such money investment can achieve the
income and employment targetsprovided it
is.combined with an intensive
program to put undertilized resources to work.
This latter phase of the
program-involving an additional investment effort 40 per cent as great as
that of the monetary program, and providing majo- employment and income
possibilities--may be essential, not only to the targets for 1960/61, but
to create conditions for subsequent growth in the Indian economy.
Mhile each of the present draft plans pays some attetion to the need
for mobilizing underutilized resources, the key role of the unorganized
sector, or the possibilities for non-monetized investment, etc., there appears
(in the abbreviated versions available here) no over-all assessment of the
magnitude of the task nor of the nature of the key responsibility of the
public sector in its fulfillment. 1
l.In the course of the above discussion, there was no need to define
precisely the specific activities which fell in the public or the
private sector. Again - roughly, almost 50 per cent of the total investment
of Ra, 8700 crores would be in the public sector, as would 57pe'r cent of the
monetized investment of Rs. 6100 crores. Private non-monetized investment
in construction, agriculture, and small enterprises would be large.
Whatever the specific separation between the two sectors, the important
matter is the leadership role of the public authorities. The more decisive
this, the greater the prospects of sucdess in the total effort, i.e. in both f